AIG to pay $960 mln to settle crisis-era claims

LeslieScism

American International Group Inc. posted a 13% jump in second-quarter profit, aided by solid results in its core operations and a large gain from the last of a series of divestitures prompted by its crisis-era government bailout.

The New York insurance conglomerate reported $3.07 billion in net income, up from $2.73 billion in the year-earlier quarter, in the last quarterly results to be overseen by President and Chief Executive Robert Benmosche. The 70-year-old retires Sept. 1 after five years restructuring the company as it repaid its rescue package. He will be succeeded by Peter Hancock, who runs the company's world-wide property-casualty insurance unit.

Separately, AIG agreed to pay $960 million to settle claims that it misled investors about its financial health between 2006 and 2008, in one of the largest settlements of investor litigation stemming from the financial crisis.

The proposed class-action settlement, with plaintiffs including the state of Michigan's pension plan, was disclosed in the insurance conglomerate's second-quarter earnings filing with the Securities and Exchange Commission.

The settlement, subject to federal-court approval, aims to close out more than a half-dozen separate class-action complaints filed in the wake of AIG's near collapse into bankruptcy court in September 2008.

The company faced allegations of losses totaling tens of billions of dollars from the investors, including buyers of stock and bond offerings in the two years before the company's bailout.

For the second quarter, AIG's operating earnings, which exclude realized capital gains and losses from its investment portfolio and other items considered nonrecurring on a quarterly basis, easily topped analyst expectations as they rose 11% to $1.83 billion.

On a per-share basis, operating income was $1.25, compared with the $1.05 consensus estimate of analysts surveyed by Thomson Reuters. In the year-earlier quarter, AIG reported operating income of $1.66 billion, or $1.12 a share.

Overall, net income amounted to $2.10 a share, up from $1.84. Net included a $1.4 billion, or 96 cents-a-share, gain on the sale of its aircraft-leasing unit to AerCap Holdings NV.

In the proposed settlement disclosed Monday, the plaintiffs allege that AIG made statements in news releases, financial filings, and elsewhere that hid from investors the extent of the company's subprime-mortgage exposure.

AIG was previously the plaintiff in several other lawsuits in which the insurer claimed Wall Street firms misled it about the risks of subprime mortgages they sold to AIG. AIG has so far recovered more than $2 billion in settlements from those cases.

The proposed pact "is one of the largest ever achieved in the absence of a criminal indictment or an SEC enforcement action," said Robert Hoffman, a partner with Philadelphia-based Barrack, Rodos & Bacine, a lead counsel in the case representing the Michigan pension plan.

An AIG spokesman said: "The resolution of this and other legacy financial crisis related matters better enables us to focus on AIG's future."

AIG's crisis-era legal woes aren't behind it, however. The company still faces nine separate individual securities lawsuits brought by parties including the Kuwait Investment Authority, Illinois' teachers' retirement system and various mutual funds, according to AIG's filing, among some other litigation.

The results released Monday showed improvement in the property-casualty insurance unit, after a sluggish first quarter that had prompted concern among some analysts and investors that the company's turnaround was stalling. Mr. Hancock has stressed higher pricing and an exit from unprofitable lines of business that in previous years were valued for their top-line growth, while also modernizing the company's computer infrastructure to make better use of data analytics.

While net premiums written, an indicator of future revenue that reflects the value of coverage sold in the quarter, declined 1% to $9.21 billion in the quarter, the unit posted pretax operating income of $1.36 billion, up 25% from the year-earlier period. The company cited improvement in underwriting results, which it said was partially offset by a decline in net investment income, including lower returns on alternative investments.

Unlike many U.S.-focused peers hit with higher costs from storms in the second quarter compared, AIG's more globally focused property-casualty business saw a dip in catastrophe costs, as disaster costs world-wide came in lower than the year before. AIG's catastrophe losses were $139 million in the most-recent quarter, compared with $316 million in the prior-year period. The year-earlier results also were hurt by a $154 million reserve increase.

Quarterly pretax profit at AIG's life and retirement operation rose 3% to $1.18 billion. Its results reflected higher fee income from growth in assets under management partially offset by lower investment income.

AIG's mortgage-guaranty business more than doubled its pretax operating income to $210 million.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.